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HomeMy WebLinkAbout6.e. Post-Issuance Compliance Procedure and Policy for Tax-Exempt Governmental Bonds 9ROSEMOUNT EXECUTIVE SUMMARY CITY COUNCIL City Council Meeting Date: August 21, 2012 AGENDA ITEM: Post - Issuance Compliance Procedure AGENDA SECTION: and Policy for Tax - Exempt Governmental Consent Bonds PREPARED BY: Jeff May, Finance Director AGENDA NO. (0, ATTACHMENTS: Resolution, Policy and Kennedy & APPROVED BY: Graven Memo p aI RECOMMENDED ACTION: Approve a Resolution Approving Post - Issuance Compliance Procedure and Policy for Tax - Exempt Governmental Bonds. ISSUE The issue before the City Council is the approval of the new policy that pertains to reporting requirements for tax - exempt governmental bonds issued by the City. BACKGROUND This item is on the agenda to bring forth suggestions by Springsted (our financial advisors) and Kennedy & Graven (our bond counsel) to put a new City policy in place that complies with the IRS requirements that issuers of bonds have a written policy in place that ensures that the issuers are following all of the reporting requirements that must be done after the bonds have been issued. Everything that is included in this policy are practices that we have always followed in the past. When we close on the bonds and final reports are filed with the IRS we will now be able to check the box on the special form that states that we have this policy approved and in place. Kennedy & Graven helped me put this policy together and I have included a memo sent by them that helps explain the rational for the need for the policy. SUMMARY Recommend the above motion. CITY OF ROSEMOUNT DAKOTA COUNTY, MINNESOTA RESOLUTION 2012 - RESOLUTION APPROVING POST - ISSUANCE COMPLIANCE PROCEDURE AND POLICY FOR TAX- EXEMPT GOVERNMENTAL BONDS BE IT RESOLVED By the City Council (the "Council") of the City of Rosemount, Minnesota ( "City ") as follows: Section 1. Recitals. 1.01. The City from time to time issues tax- exempt governmental bonds to finance various public projects. 1.02. Under Sections 103 and 140 to 150 of the Internal Revenue Code of 1986, as amended (the "Code ") and related regulations, the City is required to take certain actions after the issuance of such bonds to ensure that interest on those bonds remains tax- exempt. 1.03. The City has determined to adopt written procedures regarding how the City will carry out its bond compliance responsibilities, and to that end has caused to be prepared a document titled Post - Issuance Compliance Procedure and Policy for Tax - Exempt Governmental Bonds (the "Policy "). 1.04. The Council has reviewed the Policy has determined that it is in the best interest of the City to adopt the Policy. Section 2. Policy Approved. 2.01. The Council approves the Policy in substantially the form on file in City Hall. 2.02. City staff are authorized to take all actions necessary to carry out the Policy. ADOPTED by the City Council of the City of Rosemount, Minnesota, this 21st day of August, 2012. William H. Droste, Mayor ATTEST: Jeffrey A. May, Deputy City Clerk THE CITY OF ROSEMOUNT, MINNESOTA POST - ISSUANCE COMPLIANCE PROCEDURE AND POLICY FOR TAX - EXEMPT GOVERNMENTAL BONDS Adopted August 21, 2012 Post - Issuance Compliance Procedure and Policy For Tax - Exempt Governmental Bonds The City of Rosemount, Minnesota (the "Issuer ") issues tax- exempt governmental bonds ( "TEBs ") to finance capital improvements. As an issuer of TEBs, the Issuer is required by the terms of Sections 103 and 141 -150 of the Internal Revenue Code of 1986, as amended (the "Code "), and the Treasury Regulations promulgated thereunder (the "Treasury Regulations "), to take certain actions after the issuance of TEBs to ensure the continuing tax - exempt status of such bonds. In addition, Section 6001 of the Code and Section 1.6001 -1(a) of the Treasury Regulations impose record retention requirements on the Issuer with respect to its TEBs. This Post - Issuance Compliance Procedure and Policy for Tax - Exempt Governmental Bonds (the "Policy ") has been approved and adopted by the Issuer to ensure that the Issuer complies with its post- issuance compliance obligations under applicable provisions of the Code and Treasury Regulations. 1. Effective Date and Term. The effective date of this Policy is the date of approval by the City Council of the Issuer (August 21, 2012) and this Policy shall remain in effect until superseded or terminated by action of the City Council of the Issuer. 2. Responsible Parties. The Finance Director of the City of Rosemount, Minnesota (the "Compliance Officer ") shall be the party primarily responsible for ensuring that the Issuer successfully carries out its post- issuance compliance requirements under applicable provisions of the Code and Treasury Regulations. The Compliance Officer will be assisted by the staff of the Finance Department of the Issuer and by other Issuer staff and officials when appropriate. The Compliance Officer of the Issuer will also be assisted in carrying out post- issuance compliance requirements by the following organizations: (a) Bond Counsel (as of the date of approval of this Policy, bond counsel for the Issuer is Kennedy & Graven, Chartered); (b) Financial Advisor (the person, organization, or officer of the Issuer primarily responsible for providing financial advisory services to the Issuer); (c) Paying Agent (the person, organization, or officer of the Issuer primarily responsible for providing paying agent services for the Issuer); and (d) Rebate Analyst (the organization primarily responsible for providing rebate analyst services for the Issuer). The Compliance Officer shall be responsible for assigning post- issuance compliance responsibilities to other staff of the Issuer, Bond Counsel, Paying Agent, and Rebate Analyst. The Compliance Officer shall utilize such other professional service organizations as are necessary to ensure compliance with the post - issuance compliance requirements of the Issuer. The Compliance Officer shall provide training and educational resources to Issuer staff responsible for ensuring compliance with any portion of the post - issuance compliance requirements of this Policy. -1- 3. Post - Issuance Compliance Actions. The Compliance Officer shall take the following post- issuance compliance actions or shall verify that the following post- issuance compliance actions have been taken on behalf of the Issuer with respect to each issue of TEBs: (a) The Compliance Officer shall prepare a transcript of principal documents (this action will primarily be the responsibility of Bond Counsel or the Financial Advisor). (b) The Compliance Officer shall file with the Internal Revenue Service (the "IRS "), within the time limit imposed by Section 149(e) of the Code and applicable Treasury Regulations, an Information Return for Tax - Exempt Governmental Obligations, Form 8038 -G (this action will be the primary responsibility of Bond Counsel). (c) The Compliance Officer (in consultation with the Financial Advisor and Bond Counsel) shall prepare an "allocation memorandum" for each issue of TEBs in accordance with the provisions of Treasury Regulations, Section 1.148- 6(d)(1), that accounts for the allocation of the proceeds of the tax - exempt bonds to expenditures not later than the earlier of: (i) 18 months after the later of (A) the date the expenditure is paid, or (B) the date the project, if any, that is financed by the tax - exempt bond issue is placed in service; or (ii) 60 days after the earlier of (A) the fifth anniversary of the issue date of the tax- exempt bond issue, or (B) the date 60 days after the retirement of the tax - exempt bond issue. (d) The Compliance Officer, in consultation with Bond Counsel, shall identify proceeds of TEBs that must be yield- restricted and shall monitor the investments of any yield - restricted funds to ensure that the yield on such investments does not exceed the yield to which such investments are restricted. (e) In consultation with Bond Counsel, the Compliance Officer shall determine whether the Issuer is subject to the rebate requirements of Section 148(0 of the Code with respect to each issue of TEBs. In consultation with Bond Counsel, the Compliance Officer shall determine, with respect to each issue of TEBs of the Issuer, whether the Issuer is eligible for any of the temporary periods for unrestricted investments and is eligible for any of the spending exceptions to the rebate requirements. The Compliance Officer shall contact the Rebate Analyst (and, if appropriate, Bond Counsel) prior to the fifth anniversary of the date of issuance of each issue of TEBs of the Issuer which are subject to such rebate requirements, and each fifth anniversary thereafter, to arrange for calculations of the rebate requirements with respect to such TEBs. If a rebate payment is required to be paid by the Issuer, the Compliance Officer shall prepare or cause to be prepared the Arbitrage Rebate, Yield Reduction and Penalty in Lieu of Arbitrage Rebate, Form 8038 -T, and submit such Form 8038 -T to the IRS with the required rebate payment. If the Issuer is authorized to recover a rebate payment previously paid, the Compliance Officer shall prepare or cause to be prepared the Request for Recovery of Overpayments Under Arbitrage Rebate Provisions, Form 8038 -R, with respect to such rebate recovery, and submit such Form 8038 -R to the IRS. -2- 4. Procedures for Monitoring, Verification, and Inspections. The Compliance Officer shall institute such procedures as the Compliance Officer shall deem necessary and appropriate to monitor the use of the proceeds of TEBs issued by the Issuer, to verify that certain post- issuance compliance actions have been taken by the Issuer, and to provide for the inspection of the facilities financed with the proceeds of such bonds. At a minimum, the Compliance Officer shall establish the following procedures: (a) The Compliance Officer shall monitor the use of the proceeds of TEBs to: (i) ensure compliance with the expenditure and investment requirements under the temporary period provisions set forth in Treasury Regulations, Section 1.148 -2(e); (ii) ensure compliance with the safe harbor restrictions on the acquisition of investments set forth in Treasury Regulations, Section 1.148 -5(d); (iii) ensure that the investments of any yield- restricted funds do not exceed the yield to which such investments are restricted; and (iv) determine whether there has been compliance with the spend -down requirements under the spending exceptions to the rebate requirements set forth in Treasury Regulations, Section 1.148 -7. (b) The Compliance Officer shall monitor the use of all bond - financed facilities in order to: (i) determine whether private business uses of bond - financed facilities have exceeded the limits set forth in Section 141(b) of the Code as a result of leases and subleases, licenses, management contracts, research contracts, naming rights agreements, or other arrangements that provide special legal entitlements to nongovernmental persons; and (ii) determine whether private security or payments that exceed the limits set forth in Section 141(b) of the Code have been provided by nongovernmental persons with respect to such bond - financed facilities. The Compliance Officer shall provide training and educational resources to any Issuer staff who have the primary responsibility for the operation, maintenance, or inspection of bond - financed facilities with regard to the limitations on the private business use of bond - financed facilities and as to the limitations on the private security or payments with respect to bond - financed facilities. (c) The Compliance Officer shall undertake the following with respect to each outstanding issue of TEBs of the Issuer: (i) an annual review of the books and records maintained by the Issuer with respect to such bonds; and (ii) an annual physical inspection of the facilities financed with the proceeds of such bonds, conducted by the Compliance Officer with the assistance with any Issuer staff who have the primary responsibility for the operation, maintenance, or inspection of such bond - financed facilities. 5. Record Retention Requirements. The Compliance Officer shall collect and retain the following records, if applicable, with respect to each issue of TEBs of the Issuer and with respect to the facilities financed with the proceeds of such bonds: (i) audited financial statements of the Issuer; (ii) appraisals, demand surveys, or feasibility studies with respect to the facilities to be financed with the proceeds of such bonds; (iii) publications and brochures related to the bond financing; (iv) trustee or paying agent statements; (v) records of all investments and the gains (or losses) from such investments; (vi) paying agent or trustee statements regarding investments and investment earnings; (vii) reimbursement resolutions and expenditures reimbursed with the proceeds of such bonds; (viii) allocations of proceeds to expenditures (including costs of issuance) and the dates and amounts of such expenditures (including requisitions, draw schedules, draw requests, invoices, bills, and cancelled checks with respect to such expenditures); (ix) contracts entered into for the construction, renovation, or purchase of bond - financed facilities; (x) an asset list or schedule of all bond - financed depreciable property and any depreciation schedules with respect to such assets or property; (xi) records of the purchases and sales of bond - financed assets; (xii) private business uses of bond - financed facilities that arise subsequent to the date of issue through leases and subleases, licenses, management contracts, research contracts, naming rights agreements, or other arrangements that provide special legal entitlements to nongovernmental persons and copies of any such agreements or instruments; (xiii) arbitrage rebate reports and records of -3- rebate and yield reduction payments; (xiv) resolutions or other actions taken by the governing body subsequent to the date of issue with respect to such bonds; (xv) formal elections authorized by the Code or Treasury Regulations that are taken with respect to such bonds; (xvi) relevant correspondence relating to such bonds; (xvii) documents related to guaranteed investment contracts or certificates of deposit, credit enhancement transactions, and financial derivatives entered into subsequent to the date of issue; (xviii) copies of all Form 8038Ts and Form 8038 -Rs filed with the IRS; and (xix) the transcript prepared with respect to such TEBs. The records collected by the issuer shall be stored in any format deemed appropriate by the Compliance Officer and shall be retained for a period equal to the life of the TEBs with respect to which the records are collected (which shall include the life of any bonds issued to refund any portion of such TEBs or to refund any refunding bonds) plus 3 years. 6. Remedies. In consultation with Bond Counsel, the Compliance Officer shall become acquainted with the remedial actions under Treasury Regulations, Section 1.141 -12, to be utilized in the event that private business use of bond - financed facilities exceeds the limits under Section 141(b)(1) of the Code. In consultation with Bond Counsel, the Compliance Officer shall become acquainted with the Tax Exempt Bonds Voluntary Closing Agreement Program described in Notice 2008 -31, 2008 -11 I.R.B. 592, to be utilized as a means for an issuer to correct any post- issuance infractions of the Code and Treasury Regulations with respect to outstanding tax- exempt bonds. 7. Continuing Disclosure Obligations. In addition to its post- issuance compliance requirements under applicable provisions of the Code and Treasury Regulations, the Issuer has agreed to provide continuing disclosure, such as annual financial information and material event notices, pursuant to a continuing disclosure certificate or similar document (the "Continuing Disclosure Document ") prepared by Bond Counsel and made a part of the transcript with respect to each issue of bonds of the Issuer that is subject to such continuing disclosure requirements. The Continuing Disclosure Documents are executed by the Issuer to assist the underwriters of the Issuer's bonds in meeting their obligations under Securities and Exchange Commission Regulation, 17 C.F.R. Section 240.15c2 -12, as in effect and interpreted from time to time ( "Rule 15c2 -12 "). The continuing disclosure obligations of the Issuer are governed by the Continuing Disclosure Documents and by the terms of Rule 15c2 -12. The Compliance Officer is primarily responsible for undertaking such continuing disclosure obligations and to monitor compliance with such obligations. 8. Other Post - Issuance Actions. If, in consultation with Bond Counsel, Financial Advisor, Paying Agent, Rebate Analyst, or the City Council, the Compliance Officer determines that any additional action not identified in this Policy must be taken by the Compliance Officer to ensure the continuing tax - exempt status of any issue of governmental bonds of the Issuer, the Compliance Officer shall take such action if the Compliance Officer has the authority to do so. If, after consultation with Bond Counsel, Financial Advisor, Paying Agent, Rebate Analyst, or the City Council, the Compliance Officer and the Administrator determine that this Policy must be amended or supplemented to ensure the continuing tax - exempt status of any issue of governmental bonds of the Issuer, the Administrator shall recommend to the City Council that this Policy be so amended or supplemented. -4- 9. Taxable Governmental Bonds. Most of the provisions of this Policy, other than the provisions of Section 7, are not applicable to governmental bonds the interest on which is included in gross income for federal income tax purposes. On the other hand, if an issue of taxable governmental bonds is later refunded with the proceeds of an issue of tax- exempt governmental refunding bonds, then the uses of the proceeds of the taxable governmental bonds and the uses of the facilities financed with the proceeds of the taxable governmental bonds will be relevant to the tax- exempt status of the governmental refunding bonds. Therefore, if there is any reasonable possibility that an issue of taxable governmental bonds may be refunded, in whole or in part, with the proceeds of an issue of TEBs, then for purposes of this Policy, the Compliance Officer shall treat the issue of taxable governmental bonds as if such issue were an issue of TEBs and shall carry out and comply with the requirements of this Policy with respect to such taxable governmental bonds. The Compliance Officer shall seek the advice of Bond Counsel as to whether there is any reasonable possibility of issuing TEBs to refund an issue of taxable governmental bonds. 10. Qualified 501(c)(3) Bonds. If the Issuer issues bonds to finance a facility to be owned by the Issuer but which may be used, in whole or in substantial part, by a nongovernmental organization that is exempt from federal income taxation under code section 501(c)(3) (a "501(c)(3) organization "), the Issuer may elect to issue the bonds as "qualified 501(c)(3) bonds" the interest on which is exempt from federal income taxation. Although such qualified 501(c)(3) bonds are not governmental bonds, the Compliance Officer may treat such bonds as if they were TEBs and will comply with the requirements of this policy regarding such bonds. Alternatively, in cases where compliance activities are reasonably within the control of the relevant 501(c)(3) organization, the finance director may determine that all or some portion of compliance responsibilities described in this policy will be assigned to the relevant organization. 11. Conduit Bonds. The Issuer may also issue tax - exempt bonds, the proceeds of which are loaned to certain private entities, including qualified 501(c)(3) organizations (referred to as "conduit bonds "). The Issuer will require, as part of approval of any conduit bonds, that the borrower assumes the duties of post - issuance compliance described in this policy, including provisions for reporting to the Issuer. -5- 470 US Bank Plaza p 200 South Sixth Street s 4 #1f4 gawp Minneapolis MN 55402 (612) 337 -9300 telephone (612) 337 -9310 fax http: / /www.kennedy- graven.com CHARTERED MEMORANDUM To: City of Rosemount, Minnesota Attn: Jeff May From: Jenny Boulton and Mary Dyrseth, Kennedy & Graven Re: Post - Issuance Compliance for Tax - Exempt Bonds Date: August 7, 2012 The City of Rosemount, Minnesota (the "Issuer ") is an issuer of tax- exempt governmental bonds. Over time, the Internal Revenue Service ( "IRS ") has developed a series of regulations that require issuers of such bonds to take certain actions after the bonds have been issued, to ensure that the bonds remain tax - exempt. The IRS has also begun to investigate whether issuers of tax - exempt bonds are complying with these regulations. For example, in early 2009, the IRS mailed its Governmental Bond Financings Compliance Check Questionnaire, Form 14002 to 200 governmental entities that had issued tax - exempt bonds in 2005. A major focus of the IRS questionnaire was whether the governing body of the issuer responding to the questionnaire had adopted written procedures for its required post - issuance compliance actions. The questions in that questionnaire provide guidance from the IRS on the post- issuance actions that are expected from issuers of tax - exempt governmental bonds, the records that the IRS expects such issuers to retain, and the period of time such records are expected to be retained. The IRS has suggested that it may send this or a similar questionnaire to more issuers in the near future. More recently, in September 2011, the IRS revised its Form 8038 -G, which is the informational tax return that issuers of tax - exempt governmental bonds are required to submit in connection with each bond issue. The new version of the Form 8038 -G requires the issuer to certify whether it has written procedures in place for its post- issuance compliance activities. In addition, if a problem with the tax- exemption of the bonds is identified at some point, the IRS has indicated it will allow reduced closing agreement amounts under its Voluntary Closing Agreement Program for issuers who implement written post- issuance compliance procedures. 407858v1 JSB RS125 -12 Our office has prepared a model policy which, if implemented and followed, will meet IRS requirements for post - issuance compliance. We recommend that the City Council adopt this policy or a similar policy, and that it follow the adopted policy with regard to all of its tax - exempt bonds. If you have any questions about post - issuance compliance or the proposed policy, please do not hesitate to call us at (612) 337 -9202. 407858v1 JSB RS125 -12